What is a private loan?
Private loans, also referred to as alternative educational loans, are non-federal educational loans that are available from banking institutions and other private lenders. Students typically use private loans to bridge any gap between the total cost of education and traditional financial aid resources. 
Are private loans a good way to finance my education?
Student loans play an important role in financing the rising costs of higher education. If you borrow sensibly and understand your obligation to repay the loan, you shouldn't be afraid to use a student loan to pay for your education. Always seek grants and scholarships first, then federal loans, and finally private loans.
I am a dependent undergraduate student and my family and I would like to finance our portion of my educational costs with a private, non-federal loan in my name, rather than a taking a Federal PLUS in my parent’s name. Is this an option?
Some private lenders offer families the option to secure a private non-federal educational loan in the student’s name, but a credit-worthy cosigner, such as a parent, is usually also required. There are usually several repayment options, and in many cases the principle and interest can be deferred. These private loans are credit-based, and the interest rates are variable.
What should I know before taking out a private loan?
Repayment: When you borrow money for your education, you sign a promissory note legally obligating you to repay the loan according to the stated terms and conditions. When the time comes for repayment, usually after your education is complete, meeting your student loan obligation helps you earn a good credit rating, which follows you throughout your life.
Not repaying your loans may result in the following:
- You may not be able to obtain more credit, i.e., to buy a car or house.
- You may be turned down for a credit card.
- You will forfeit your tax refunds.
- Your employer can be ordered to garnish your pay, i.e., withhold what you owe from your paycheck.
- You will be sued and will owe collection fees and attorney fees, in addition to repaying your loan.
Remember, you must repay your student loans even if you do not graduate or otherwise complete your education. Failure to find a job after graduation will not relieve you of this responsibility.
Interest rates: Various interest rates and fees are available from lending institutions. You also should consider what income you can realistically expect in your proposed career. Instead of a flat interest rate that is easy to compare, such as 8 or 10 percent, private loan programs generally have interest rates that are variable. Usually, they are based on either the prime rate or a treasury bill rate, such as the 91-day T-Bill or 13-week T-Bill rate. Some lenders may base their pricing on LIBOR, the London Interbank Offering Rate. LIBOR is an index similar to the US T-Bill and Commercial Paper indexes. Interest rates on private loans are usually based on one of these variable rates plus a set percentage, such as the 91-day T-Bill plus 3.75 percent. As these rates fluctuate with the market, the interest rates on the loans go up or down. Usually lenders adjust interest rates on a quarterly basis, but may adjust them as often as monthly. There also may be different interest rates used when you are in school versus when you are in repayment.
Fees: There are different kinds of fees that a private loan company may charge. Origination fees may be charged for the creation of the loan. Lenders also may add an additional fee when you enter into repayment. This fee may be assessed on the original principal alone or on the original principal plus the accrued interest. So, when looking at how much a loan program charges in fees, make sure that you add up both the fees charged initially at disbursement and any fees charged at the time you go into repayment. Always be sure to ask your chosen lender about such fees.
Which lender should I choose?
Choosing a private loan program is a personal decision, one which should be based on your needs. In the section below, we have provided a list of questions that you should consider when choosing a lender. We also suggest that you visit The SmartStudent Guide to Financial Aid web site, which offers tools you need to navigate the many aspects of private loan products. This site explains how a lender determines its interest rates. It also provides you with a basic comparison chart. This useful chart lists lenders, provides links to lenders, and also offers information on loan limits, terms, lender rates and fees.
What are good questions to ask potential lenders when deciding if their loan is right for me?
- Who do I contact when I have a question or a problem about my loan?
- What are the current interest rates?
- How often do these rates fluctuate?
- Is there an interest rate cap?
- Are there any fee reductions, interest reductions, or other incentives offered during the life of the loan?
- Do the loan interest rates (or other incentives) change based on my credit, academic level, or whether I have a co-signer?
- When are late charges assessed and how much are these charges?
- How is the interest on my loan capitalized – quarterly, annually, or only at repayment?
- What are the repayment terms?
- Are there any penalties for pre-payments, late payments or any other reason?
How does the application process work?
Once you have decided on a lender, you will need to complete whatever application process that lender requires of you. This process will generally consist of the following steps:
- Fill out an application for the loan (most are online)
- Successfully pass a the lender’s credit check
- Complete the promissory note process required by your lender
- Provide any additional documentation your lender may require
- Follow up with your lender to make sure you have submitted all required documentation.
How do I decide on the amount I want to request in a private loan?
If you have applied for financial aid:
Your eligibility for a private loan is determined based on the difference between your total educational Cost of Attendance (COA) and any other financial aid you may have been awarded.
If you have applied for financial aid, you can refer to Campus Connection or to your financial aid award letter to find your total COA and your total aid awarded for the current year. You can use these numbers to calculate your maximum eligibility. For example, if your total COA is $30,000 and you are receiving $10,000 in other forms of aid, you will be eligible to request $20,000 in additional private aid.
If you have not applied for financial aid:
We recommend that you complete the Free Application for Federal Student Aid (FAFSA) before applying for a private loan, as federal loans are generally more advantageous for student borrowers.
However, if you do not plan to complete a FAFSA and wish only to pursue a private loan, you can obtain tuition and fee information from the Student Accounts Tuition web site.
May I use a private loan to cover a past due balance?
If you are applying for a private loan to cover a past-due balance, a current balance or for a specific cost, you may want to call or visit the billing department in the Office of Student Accounts to obtain the exact amount you need to borrow.
If you wish to apply for a loan that covers only one or two academic terms or to pay for a past balance, you must indicate to the lender the correct academic terms for which you are applying for the loan. You will need to set the loan period in the loan application to match the academic period for which you want the loan.
Contact the Office of Financial Aid and we will assist you in setting up your custom loan situation
How will my loan be disbursed?
In general, the total annual loan amount that you request will be evenly split over the terms of the current academic year. However, if you are applying for a private loan to assist with a one-time educational expense, or a single term, you must indicate to the lender the correct academic terms for which you are applying for the loan. You will need to set the loan period in the loan application to match the academic period for which you want the loan. Again, contact the Financial Aid Office for assistance in setting up your custom loan situation.
Will my loan be approved?
When you submit an application for a private loan, the lender will generate a credit report to determine your creditworthiness. If you fail to pass the credit check, the lender may give you the option to reapply with a creditworthy co-signer. Most lenders also will offer counseling to determine why you failed and provide guidance for correcting your credit. Applying for a loan with a creditworthy co-signer is always a good idea, as lenders may offer incentives such as a lower interest rate or reduced fees. Be sure to inquire about this possibility with your lender.
Because credit is the main component in a private loan approval, you may want to obtain a copy of your credit report for yourself. You can contact any of the credit bureaus listed below in order to obtain that information:
| Bureau | Telephone | Web |
| Equifax | (800) 685-1111 | www.equifax.com |
| Experian | (888) 397-3742 | www.experian.com |
| Trans Union | (800) 888-4213 | www.transunion.com |
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